Navigating Business Taxes: What Every Owner Needs to Know Year-Round

As a business owner, the last thing you want to think about is how and when you have to pay money to the government. Some business owners are under the impression that taxes are a one-and-done process during tax season.

Unfortunately, there are many situations where the business needs to remain compliant beyond the annual tax return. These include:

• Quarterly returns for payroll

• Quarterly tax estimates for income tax and replacement taxes

• Monthly returns for sales tax

The taxes that apply to you depend on multiple factors, including your industry, whether you have employees, your expected income, and your entity structure. Below is a deep dive into what taxes may affect your business:

Payroll Taxes

If you have employees, or you are considered an employee in an S-Corp or C-Corp, you will need to pay payroll taxes related to your employees' wages. Most payroll processing services will file your payments and quarterly returns on behalf of the business.

• State Requirements: Depending on your state, but the state of Illinois requires payments either monthly or semi-weekly with a quarterly return filed.

• Federal Requirements: Federal payroll taxes are paid monthly, semi-weekly, or quarterly with a quarterly return filed.

• Note: Unless the business is taxed as an S-Corp or a C-Corp, the owner cannot be a W-2 employee with these payroll requirements.

Sales Tax

If your business sells products to customers, including food, clothes, or any other tangible items, you will have to pay sales tax to the state where the products were sold.

• Complexity: This area is often the hardest to determine depending on your industry, especially for service-based businesses like plumbers, electricians, mechanics, or handymen.

• Payment and Return: Normally required monthly for the previous month.

Quarterly Estimates

To avoid interest and underpayment penalties, businesses and owners need to make quarterly payments based on expected income.

• Entities: S-Corps and C-Corps may be subject to a replacement tax depending on your state, as well as C-Corp Federal income tax

• Business Owners: Subject to self-employment taxes and income taxes.

Conclusion

Staying on top of your business's tax obligations is crucial to maintaining compliance and avoiding costly penalties. While the annual tax return might seem like the main event, it's important to remember that taxes extend throughout the year. From payroll taxes to sales tax, quarterly estimates to replacement taxes, each requirement depends on your specific business situation.

The complexity of tax rules can vary based on your industry, business structure, and whether you have employees. It’s always best to work with a knowledgeable accountant, like us here at Pathfinder, to ensure everything is in order. By keeping track of your tax deadlines and responsibilities, you can focus on growing your business with peace of mind, knowing your taxes are taken care of.